5 Steps to Take When Winding Down Your Business

August 1, 2018 by

Business ClosedThere are many reasons business owners close shop, including retirement, starting a new venture or, I hope, because they won the lottery.  No matter what the reason, it’s important to carefully wind-down a business before moving on.

Here are five steps to take:

  1. Reach consensus.  If you’re a sole proprietor, then the only consensus you need is your own.  If you are doing business as a partnership or a limited liability company (LLC) or corporation with more than one member or shareholder, you must reach a consensus with your business partners on how and when to dissolve.  Make sure everything is in writing - this cannot be stressed enough - and follow whatever guidelines apply to your articles of incorporation, bylaws, operating agreement, or other organizational documents.
  2. Seek counsel. Just as you would seek experienced counsel when starting a business, do the same when shutting one down.  This means you have the counsel of an attorney and a CPA.  Dissolution is a multi-tiered process.  Everything must be identified, addressed, and resolved.  This includes canceling licenses and permits, and filing legal and tax documents with courts, creditors, and government authorities.
  3. Comply with laws. Dissolving businesses will pay employees for any work performed until the closing date.  State law will also govern possible notice provisions under the Worker Adjustment and Retraining Notification Act (WARN) which requires at least 60 days advance notice to those who work for companies with 100 or more employees.
  4. Resolve financial obligations. All businesses' financial obligations need to be resolved before dissolving.  Those include:
    • Business taxes. When you file income tax returns for the year in which your business closes, check the box that indicates the document is a “final” return. Many state revenue agencies require additional filings for sales tax.
    • Payroll taxes. If you have employees, you must satisfy your payroll tax responsibilities or you will risk personal liability.  Inform your federal and state tax agencies that your business is closing and that you will cease to file unemployment returns and an employer’s quarterly tax form.
    • EIN accounts. Businesses should close their Employer Identification Number (EIN) account by contacting the IRS. The IRS cannot cancel your account, but closing your EIN account notifies the IRS you are not planning to use the number.
    • Business debts. Notify creditors of your plans to dissolve the business, contact business associates to whom you owe money, and arrange to settle all accounts.
  5. Maintain records.  Attorneys and CPAs may differ as to the amount of time one should retain business records and why. Although your business may be dissolved, I recommend indefinitely retaining and maintaining the business’ records, including copies of your accounting files and tax retums. This is recommended for a variety of reasons which are beyond the scope of this brief discussion.

Whether dissolving your business is a happy or sad occasion, it should be handled thoroughly.  Failing to wrap up all loose ends can lead to years of frustration and possible litigation with former employees, vendors, and partners.  If we can help you wrap things up and move on to your next venture, please call us at 813-852-6500.